What You Don't Know Could Hurt You

usiness owners are often employers and rely, as they do in other areas of their ventures, on the ability to read people in the hiring process. The subtle and not-so-subtle clues projected by job applicants during interviews can indicate a great deal about the candidates.

First impressions matter when building a staff or team; they help determine if candidates have the qualities necessary to do the job well and to mesh with the staff. However, the smartest hiring decisions sometimes involve more than likeability and the face value of the information provided by a job applicant.

Say you manage a local office for a large cable company. You've just discovered that the very personable and qualified man you hired two months ago to install service in customers' homes is actually a convicted murderer who skipped town, and bail, before serving his jail sentence.

Even more likely: You run a payment processing company and want to grow the business. You need more agents out on the street representing the company, and you've contracted with several to sign merchant accounts. Have you taken precautions against your liability? Are you certain that the business is protected against losses or fines resulting from the actions of unscrupulous agents? Do you really know your employees?

Employment verification and background checks are becoming more common across all business sectors, from retail and restaurants to financial services. For ISOs/merchant level salespeople (MLSs), this is a two-pronged issue: Not only has the need for closer examination of employee backgrounds created sales opportunities to merchants through value-added solutions, but it's also imperative that financial services companies show more diligence in their own hiring practices.

Federal legislation put in place in the aftermath of 9/11, as well as increasingly stringent card Association rules to combat increases in fraud, affect everyone in the commerce chain. Merchants, processors, acquirers, ATM owners, banks and ISOs/MLSs have to know with whom they're dealing and how to secure data against unauthorized access.

If You Don't Have Anything to Hide, Don't Worry

These regulations are forcing companies in financial services to take a harder look at expanding the information they gather on individuals and companies they partner with. This includes using investigators and automated search services to perform background checks and identity verifications.

The USA PATRIOT Act, which revised rules regarding information gathering and criminal procedure in cases of suspected terrorism, and the Department of the Treasury's Office of Foreign Assets Control (OFAC) both contribute to a broad set of compliance standards to which all financial services companies must adhere.

OFAC, for example, administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals. OFAC requirements are intended to prevent money laundering; they target foreign countries, terrorists, international narcotics traffickers, and people involved in the proliferation of weapons of mass destruction.

The Federal Trade Commission enforces the Fair Credit Reporting Act (FCRA), which promotes accuracy and ensures the privacy of information used in consumer reports. It serves as the control factor, limiting how far background checks can go into financial histories, who has access to the information and the methods they use to gather it. Investigators and automated search services must comply with FCRA rules when they access various databases.

Employment verifications differ from background checks in the scope of the information provided. Most background checks include employment verification. When a company runs either one for a client, the investigator or search firm presents the information to let the employer make a good decision toward mitigating the risk of hiring the wrong person.

When job applicants sign an application, they acknowledge the information on the application is true. With their signatures, applicants also give permission to access their records; however, applicants must give specific permission to the employer to review certain types of records, such as credit histories.

Background Checks ... at the POS?

Financial services companies are not the only ones that stand to lose when they don't know their employees. Even owners of quick service restaurants (QSRs) should worry about who's flipping burgers, running the cash register and managing the store.

According to Jimmy Wilson, Chief Executive Officer of Automated Verification Systems (AVS), two pilots conducted with Burger King outlets in the Memphis, Tenn. area produced research showing an annual employee turnover rate in that market of 250%. The QSRs in the pilots also experienced average out-of-cash-drawer losses of $15,000 - $20,000.

Memphis-based AVS is a spin off of Automated License Systems, a company that provides solutions for selling hunting and fishing licenses and running background checks for gun sales using the POS as the source for conducting the inquiries in several states.

Following 9/11, Wilson said ALS saw a need in its own company to start doing background checks on employees. Two years ago they began work on an affordable way for discount retailers or QSRs to verify information on hourly employees that would also incorporate POS terminals; that solution is AVS.

"For management and executive level positions, the Web products get where they need to go and find the people they're supposed to," Wilson said. "But there wasn't a product to check hourly employees."

Wilson said these are not high-level checks; rather, AVS' proprietary software facilitates instantaneous results at an affordable price for employers who need to verify identities and Social Security numbers (SSNs) and search motor vehicle and criminal records.

AVS partnered with VeriFone Inc. and General Information Services Inc. (GiS) to provide equipment and access to several databases. AVS is now available as a value-added solution that ISOs/MLSs can offer their merchants, creating opportunities for equipment sales and a way to combat attrition.

On VeriFone's Omni and Verix families of multi-application terminals (including wireless models, with modifications), the restaurant owner or manager enters a PIN code, which protects access to the search function.

Following an alpha-numeric entry, the terminal accesses the GiS system, and in less than two minutes, the employer has a more complete picture of the applicant.

GiS, headquartered in Chapin, S.C., is a background reporting company that provides both national and international investigations for a variety of purposes.

GiS pulls information from a number of databases in preparing reports for clients and companies of all sizes. The checks involve a combination of Web and database searches and physical in-person reviews of paper files in courthouses and county offices where electronic records are not available.

GiS accesses the same databases that contribute to the national criminal database and several others, according to Chris Karabinos, the company's Senior Vice President of Sales. He said GiS has assembled what is now the largest criminal file in existence.
Depending on the level of information requested, the AVS solution will provide name and address, motor vehicle records, SSN verification, employment history, felony criminal records, sex offender and terrorist lists, and credit reports; each background check runs between $4 and $13, Wilson said.

Most of the information is transmitted back to the terminal in as little as 20 seconds; detailed credit reports come back via fax.

Martha Richardson, VeriFone's Senior Director of Strategic Development, said the AVS employment verification and background check application is one more tool in the ISO/MLS arsenal, and one part of VeriFone's approach to bundled solutions.

However, various aspects of collecting information make it a different sale than other services such as time and attendance or age verification.

"It's legally regulated and has to fall under FCRA guidelines," she said. "The sales rep needs to learn about that and be able to explain to merchants the requirements and the paperwork involved to comply with FCRA regulations."

Richardson suggested a sales strategy to simplify the learning curve on both sides. ISOs and processors can train one or two "specialists" who know the application and can speak fluently about it to merchants.

Carrying out background check functions might be better suited for back office locations, Richardson said, because they take time and might not create the right image for the front of a business. "The background check specialist can suggest a separate terminal to use behind the scenes," she said.

"It's another way to lock in the merchant, not only with the application, [but] with an equipment sale. It's not a three-minute sale. But if you get somebody who learns it and knows it, the merchant will really care about it."

Management and executive level positions often require a more thorough examination of an applicant's records. This is especially true in financial services, where the implications of hiring the wrong person can be far-reaching, and very expensive.

According to Michael Adams, CEO of Commercial Business Intelligence Inc. (CBI), a business research and investigative firm based in Santa Paula, Calif., the danger of not performing due diligence in hiring is not apparent to many payments companies.

Adams works with companies around the world. Despite the risks involved, he estimates that only 20% of electronic transaction companies conduct employment verification searches on the agents they have on the street.

Whether it's oversight or reluctance to pay for the investigations, not knowing your employees and contractors can be costly. "Beyond financial considerations, criminal records matter and have implications for your business," Adams said. "When sales reps are going around signing contracts for your company, that person is representing you.

"There is potential liability there, and your ignorance of their background might not be enough defense in your favor."

Adams stressed that not only sales reps pose potential liability for payments companies. This potential increases exponentially in positions often characterized by high turnover.

"The losses from one bad sales rep or sub-ISO that you didn't know was operating under another ISO, or an ISO who is under extraordinary financial pressures, like tax liens, or who is on probation or parole, can be significant," he said.

Adams conducts employment verifications and background checks for the electronic transaction industry, including ISOs, processors and sponsor banks, and for companies and agencies that want to know more about their reseller partners.

Adams charges between $49 and $320 for a background check and said he does an equal number of each for CBI clients. The advantage to working with investigators, he said, is their capacity for intuitive reasoning, which often leads to uncovering more detailed information.

Palm Desert National Bank (PDNB) is a sponsor bank for ATM operators; it manages and provides more than $700 million in cash management services for 13,500 ATMs and kiosks nationwide. Liz Nutting, PDNB's Network Sponsorship Manager, said the bank works with Adams and CBI to run background checks on any person or business it sponsors.

"Our experience is that the automated searches can check only so much," Nutting said. "The human element is helpful. They do extra hunting, evaluate the information, and point out certain things."

ATM networks require sponsors and cash management and vault service providers to run background checks. PDNB has to feel confident in the quality of the information Adams provides, she said.

Of particular concern from PDNB's perspective, is evidence of fraud or malfeasance, civil litigation and financial or fraud related criminal histories.

Nutting said that Visa U.S.A. will put new regulations in place beginning November 2005. The rules will expand the responsibilities and obligations that sponsoring banks have in their agreements with ATM owners, operators and with merchants where the machines are placed.

Don't Be Afraid to Peek Behind the Curtain

Knowing employees and business partners is more important now than ever before. Issues of identity theft, fraud, compliance and data security should be on every merchant's mind, Richardson said.

Thanks to technology and the expanding boundaries of the global marketplace, working with faceless strangers makes these concerns all too possible and all too real.

"The ability to conduct business without ever seeing the person you're doing business with, or to talk to them, is very dangerous," Adams said.

One solution is to uncover as much information as possible before it's too late. "You're hiring an investigator who is going to attempt to protect you from potential losses and criminals in your organization," he said. "That's what we do."

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